By Ambar Warrick
Investing.com-- Oil prices fell further on Wednesday, extending steep losses from the prior sessions amid growing concerns that a new COVID outbreak in China and a worsening global economic outlook will severely crimp demand.
Brent oil futures dropped 0.7% $93.66 a barrel, while U.S. West Texas Intermediate futures fell 0.8% to $88.58 a barrel by 22:02 ET (02:02 GMT). Both contracts are down over 4% this week.
Oil prices fell sharply in recent sessions as major Chinese cities including Shanghai and Shenzhen ramped up COVID testing and introduced new curbs amid a spike in infections.
Beijing’s zero-COVID policy ground Chinese economic growth to a halt this year as the government introduced a flurry of lockdowns in major business hubs. This saw oil imports by the country slow steadily through the year.
Focus this week is on the 20th National Congress of the Chinese Communist Party, with markets waiting to see if the government will revise its zero-COVID policy amid increasing economic headwinds.
Chinese trade data, due on Friday, is also expected to shine more light on the pace of crude imports to the country, although an increased export quota by local refiners bodes poorly for demand.
Further weighing on oil prices, the International Monetary Fund (IMF) warned on Tuesday that the risk of a global recession was increasing. The fund also cut its global growth forecast for 2023, citing the combined effects of rising interest rates and inflation.
The forecast boosted the dollar, and weighed on most asset classes. It also sparked a 2% loss in oil prices as markets feared more demand destruction from slowing economic growth.
Oil prices have plummeted this year as investors feared that a global recession will severely dent demand for crude. Strength in the dollar weighed on crude by making imports more expensive for several major consumers.
The U.S. government has also steadily drawn down from its Strategic Petroleum Reserve in a bid to lower gasoline prices ahead of the November midterm elections. The White House recently warned that it will release more of its stockpiles, in response to a supply cut by the Organization of Petroleum Exporting Countries and its allies (OPEC+).
The supply cut provided a major boost to oil prices last week, and is expected to provide a floor for crude in the near-term. Disruptions to Russian production, due to the Ukraine war, are also expected to tighten supply this year.